The Ultimate Guide to Using a Balance Transfer Credit Card

Ever wonder if using a balance transfer offer could improve your personal finances? Laura explains in plain English how a balance transfer credit card works, how it affects your credit, and when it makes sense to use one. You’ll learn smart tips to cut your interest expense, save money, and get out of debt faster.

If you’ve ever received a balance transfer credit card offer through the mail or online, you may have wondered if it could help or hurt your finances. These promotional offers come with fine print that can be tricky to understand, especially for first-timers.

In this post, I’ll explain in plain English how a balance transfer credit card works, how it affects your credit, and when it makes sense to use one. You’ll learn smart tips to cut your interest expense, save money, and get out of debt faster.

What Is a Balance Transfer Credit Card?

A balance transfer credit card is just like a regular credit card, except that it includes an incentive to transfer balances from other accounts and pay no or lower interest rates on debt for a period of time. You can move just about any type of debt—such as a balance on a different credit card, a personal loan, or a car loan—to a balance transfer card.

Every balance transfer offer is different, but the longer the promotional period the better. The most common promotions are an annual percentage rate (APR) of 0% during that introductory period. That means you don’t accrue one penny of interest until after the promotion expires.

Card issuers offer these terrific deals as an incentive for you to do more business with them. I’ve used many balance transfer offers and they can be a smart way to cut your interest temporarily and save money.

Let’s say you have a $5,000 balance on a card charging 22% interest and move it to a card that charges 0% for the first 12 months. You’d save about $875 during the promotional period, which could go toward paying off your balance. That helps reduce the time it takes to get out of debt.

But as I mentioned, after the music stops playing and the introductory rate ends, you’ll be charged a standard APR. It could be higher or lower than your previous rate before doing a transfer. So be sure you understand exactly what happens when the promotion ends.

Another charge to be aware of is called a balance transfer fee. It’s a one-time fee for any amounts you transfer, and general ranges from 3% to 5%. For example, if you transfer $1,000 to a card with a 3% transfer fee, you’ll be charged $30, which increases your debt to $1,030.

However, some cards offer a 0% fee if you complete a transfer during a limited period, such as within 60 days of opening a new account. I received a question from Lorna S. about this benefit, who said:

Thank you so much for your Money Girl podcasts, which are helping me conquer my fear of money. I’m about to transfer my credit card balance to a 0% interest rate card, however there’s something I don’t understand. It says there is no introductory balance transfer fee for transfers made during the first 60 days of opening the account. What happens after 60 days?

Lorna, if you miss that incentive you can still make a transfer after 60 days, but a fee would apply then. So be sure to take advantage of a no-fee offer if you see one and know that doing a balance transfer is right for you.

Another point to remember is that just because a card advertises 0% interest for 24 months doesn’t mean that you’re guaranteed to qualify for those exact terms. You could be offered a shorter promotional period. Or you may not be able to transfer as much debt as you’d like.

Just like with a regular credit card, transfer deals come with a credit limit. So, if you have $6,000 of debt, but get approved for a $2,000 credit limit, you’ll only be able to move $2,000, including any transfer fee, to take advantage of the deal.